A 2010 Federal Reserve rule requires banks to ask customers if they want to sign up for overdraft protection programs, which often come with steep penalties for making purchases that exceed the account balance. A Consumer Finance Protection Board report released in June suggests the change may not be enough to protect consumers.
“Consumers need to be able to anticipate and avoid unnecessary fees on their checking accounts. But we are concerned that overdraft programs at some banks may be increasing costs,” CFPB Director Richard Cordray said in a statement. “What is often marketed as overdraft protection may actually be putting consumers at greater risk of harm.”
Community banks, which earn on average more than a quarter of their net income after taxes from such fees, according to one industry survey, signaled that they’re prepared to push back against further restrictions.
“Regulatory policy and oversight should not impede a bank’s ability to offer a variety of overdraft payment services to meet their customers’ financial needs,” the Independent Community Bankers of America said in a statement released in response to the report. “Consumers must retain the ability to access overdraft services that best fit their unique needs and avoid being locked into an ill-fitting ‘one-size-fits-all’ overdraft program.”
On a hot, sunny morning last fall, 69-year-old retiree Pamela Chappell of Citrus Heights hit rock bottom. She was scraping by on Social Security checks and a tiny pension while paying for medication to treat her lymphedema, a painful swelling in her legs. Then she got a letter from the IRS warning her that it was about to empty her savings account of $8,000 — every dollar she had — for back taxes.
Banks throughout the country are putting new practices in place to comply with an onset of new federal regulations prompted by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act and other post-meltdown rule changes. Those expensive efforts are sparking major changes and concerns for some of the Capital Region’s smaller lenders.